AKS Hot Zone: Contract Sales Forces and the Limits of Incentive Pay

Recent cases reinforce that, while the Anti-Kickback Statute (AKS) (42 U.S.C. § 1320a-7b) employee safe harbor accommodates incentive pay for bona fide employees, commission or bonus payment structures for independent contractors may present a compliance risk.

This alert provides an overview of the regulatory landscape, case law, and US Department of Health and Human Services Office of the Inspector General (OIG) guidance regarding the use of contract sales forces and recommendations on how to mitigate risk.

Contract Sales Forces

Many pharmaceutical and device manufacturers and suppliers, particularly durable medical equipment suppliers or companies with highly specialized products, contract with third-party sales forces, rather than employing their own internal sales team. This strategy allows flexibility with respect to staffing; companies can quickly scale up their sales teams without needing to hire and maintain an in-house sales team. Contract sales forces can also provide market insights, data, and valuable marketing strategies that are unavailable to smaller companies.

However, many of the activities provided by contract sales forces may be high risk from a health care regulatory compliance perspective. For example, some services provided by contract sales forces can include interactions between sales representatives and health care providers. Representatives may interact with providers at their offices, which may involve the provision of food and beverages or other transfers of value. These activities can potentially lead to manufacturer liability under the AKS if any improper remuneration results in prescriptions.

As discussed in additional detail below, structuring payments for contract sales activities can also be challenging, as compensation intended to reward sales activities (like commission payments or payments based on a percentage of sales) may implicate the AKS.

The Anti-Kickback Statute

The AKS prohibits soliciting or receiving remuneration, meaning anything of value provided directly or indirectly, in return for referrals for items or services reimbursable by a federal health care program. Remuneration is defined broadly under the AKS. The OIG states that “remuneration may take the form of cash, cash equivalents, cost-sharing waivers or subsidies, an opportunity to earn a fee, items, space, equipment, and services—regardless of the amount of remuneration…” Liability under the AKS may also lead to False Claims Act (FCA) liability, civil monetary penalties, or exclusion from federal health care programs.

The AKS outlines several exceptions, also known as safe harbors, that provide a shield against AKS liability, as well as FCA liability stemming from an AKS violation. One such safe harbor protects payments made by an employer to an employee who has a bona fide employment relationship with such employer. Practically, this allows manufacturers to provide compensation, including commissions or bonuses based on sales metrics, to sales employees. The critical caveat to this safe harbor is that it applies only to payments made to bona fide employees, not independent contractors or representatives from contract sales forces.

Other AKS safe harbors also do not protect the use of contract sales forces agreements that provide for commission or volume-based payments. The personal services safe harbor, for example, which applies independent contractors, requires that payment methodology be set in advance consistent with fair market value. As such, payments that take into account the volume or value of referrals or business otherwise generated between the parties, like commission payments, would cause the arrangement to fall out of compliance with the safe harbor.

The independent contractor exclusion from the employee safe harbor was the crux of United States v. Mallory, 988 F.3d 730 (4th Cir. 2021). In Mallory, Health Diagnostic Laboratory (HDL) and Singulex, Inc., both blood testing providers, entered into separate agreements with BlueWave Healthcare Consultants to market their tests. Both HDL and Singulex paid BlueWave a base fee plus volume-based commissions. The federal government deemed these volume-based commission structures unlawful remuneration under the AKS, thereby rendering related claims false under the FCA.

In its opinion, the Fourth Circuit explained that independent contractors were deliberately excluded from the employee commission safe harbor. Specifically, it pointed to OIG’s comments in 1989 highlighting independent contractors’ abusive practices as reasoning for ultimately deciding not to include them in the safe harbor.

This decision is consistent with prior advice published by OIG. In a 1998 advisory opinion, it warned that there is an “increased potential for program abuse” with contract sales forces. It also flagged several “suspect characteristics,” including:

• Compensation based on percentage of sales.

• Direct billing of a federal health care program by the seller.

• Direct contact between the sales agent and physicians in a position to order items or services that are then paid for by a federal health care program.

• Use of health care professionals as sales agents.

In a 2023 advisory opinion, OIG also indicated that payment structures involving bonus payments to independent contractor physicians or other non-employees raise fraud and abuse concerns.

Enforcement Insights

Since the Fourth Circuit’s decision in Mallory, there have been several cases that analyze commission or bonus structures for contract sales forces. Though courts have ultimately reached different conclusions regarding whether certain arrangements violate the AKS, each court’s analysis is very fact specific. These cases nevertheless shed light on the government’s perspective on the use of contract sales forces and can be helpful guides for companies considering outsourcing sales forces.

United States ex rel. Langer v. Zimmer Biomet Holdings Inc.

In Zimmer, the relator alleged that Zimmer Biomet Holdings, Inc. violated the AKS by converting its orthopedic medical device sales representatives from employees to independent contractors and instituting volume-based commissions and bonuses for their sales. United States ex rel. Langer v. Zimmer Biomet Holdings, Inc., 743 F. Supp. 3d 282 (D. Mass. 2024).

The court relied on the same reasoning as the Fourth Circuit in Mallory in denying Zimmer’s motion to dismiss, pointing to OIG’s analysis in excluding independent contractors from the safe harbor. The court emphasized that an independent contractor arrangement does not per se violate the AKS. There must be a plausible AKS claim, but that claim need not fall into one of OIG’s “suspect characteristics.” The court concluded that because there was a plausible AKS claim, the case should proceed. We are monitoring the ongoing litigation.

Omni Healthcare, Inc. v. MD Spine Solutions LLC

In Omni Healthcare, MD Spine Solutions (MD Labs) and its owners were sued in part for providing revenue-based commissions to independent contractors. Omni Healthcare, Inc. v. MD Spine Sols. LLC, 761 F. Supp. 3d 356 (D. Mass. 2025). On January 6, 2025, the US District Court for the District of Massachusetts granted MD Labs’ motion for summary judgment. It held that there was insufficient evidence to prove that the independent contractors’ status or conduct “improperly or unduly influenced a provider’s decision to purchase the product.” Importantly, the relator was unable to show that the contract sales force was the driving factor behind Omni Healthcare’s alleged purchase of medically unnecessary UTI tests.

The court’s summary judgment decision in Omni Healthcare was applied less than three months later in United States v. Exagen, Inc., No. 21-CV-10950-ADB, 2025 WL 959460, at *8 (D. Mass. Mar. 31, 2025). There, the District of Massachusetts granted summary judgment for the defendant, reasoning that there was an insufficient causal connection between the independent contractors’ conduct and the alleged false claims submitted to the government.

These cases, along with the First Circuit’s decision in United States v. Regeneron Pharmaceuticals, Inc. instituting a stringent but-for causation standard, indicate that causation will continue to be a determining factor for many AKS cases, including those involving allegations related to the use of contract sales forces. United States v. Regeneron Pharms., Inc., 128 F.4th 324, 329 (1st Cir. 2025). Moving forward, the government could face an uphill battle in proving that a kickback caused the submission of a false claim under the but-for causation standard. By contrast, manufacturers may be able to defend themselves from alleged AKS violations by pointing to an insufficient causal connection between the alleged illegal remuneration paid to a contract sales force (i.e., commission or volume-based payments) and any subsequent recommendations or purchases of the manufacturer’s products.

Compliance Takeaways

Due to the lack of an AKS safe harbor protecting commission-based payments to contract sales forces, manufacturers face heightened scrutiny when outsourcing their sales teams. Though the use of independent contractors does not constitute a per se violation of the AKS, manufacturers should proceed with caution when creating compensation structures. While cases like Omni Healthcare and Exagen show that a government claim can fail without sufficient causation, commission and volume-based payments to contract sales forces nevertheless pose compliance risks potentially exposing manufacturers to enforcement actions.

To mitigate the risks associated with using contract sales forces, manufacturers should consider:

• Maintaining a signed, written agreement with the contract sales force company, drafted with the AKS and applicable safe harbors in mind. The agreement should:

  • Require the contract sales agents to comply with all applicable laws, regulations, and guidance governing the promotion and sale of drugs and devices in the United States.

  • Require contract sales agents to follow all applicable manufacturer policies and procedures governing the sale of the manufacturer’s products, including those policies and procedures addressing interactions with health care professionals.

  • Require the contract sales agents to undergo regular compliance training, including training on interactions with health care professionals.

  • Ensure the contract sales agents are only using promotional and marketing materials that have been approved by the manufacturer.

  • Permit the manufacturer to audit and monitor contract sales force activities.

• Ensuring both the manufacturer and contract sales force have robust compliance programs with appropriate policies, training, and well-publicized reporting mechanisms.

• Where possible, avoiding volume-based compensation and instead implementing incentives for contract sales agents that are not tied to sales metrics, such as:

  • Attending a certain number of meetings with health care professionals.

  • Identifying and meeting with new health care professional targets.

  • Completing educational or product training.

• Ensuring that all fees paid to the contract sales force are fair market value for the services provided.

Conclusion

Recent case law shows that the use of contract sales forces continues to carry elevated AKS and FCA risks, particularly where compensation is tied to sales volume. While these arrangements are not per se unlawful, volume-based payments or commissions for independent contractors fall outside the employee safe harbor and can be viewed as improper remuneration absent careful structuring. To mitigate risk exposure, manufacturers should ensure payments for contract sales services are fair market value and should oversee the services provided by the contract sales force through robust auditing and monitoring efforts. For tailored guidance on designing compliant contract sales force arrangements, please contact the authors or the ArentFox Schiff attorney who regularly handles your work.